Tuesday, June 2, 2009

Are We Being Gamed?

Stocks ended the day mixed as the market took a breather after soaring past the 200 day MA yesterday.

Many(including myself) have been amazed by the size and scope of this rally. I realized long ago that our current market is basically a casino right now that's based on ZERO fundamentals. However, the fact that I know this doesn't make the tape any easier to trade.

I have seen more frustration and anger on the trading sites that I frequent over the past few weeks than I have at any other time since our economic collapse began.

I picked up a chart that may help explain why the tape has been so difficult and thus frustrating to trade:

My Take:

As you can see above, we(the retail investor) are becoming less and less relevant to the stock market as a whole.

You need to ask yourself a very humbling question after seeing this chart: Do you as a retail investor even matter anymore?

Many of us continue to hop on various websites searching for someone that has the answer as to why the market is doing what it is doing.

I finally now have the answer. If you aren't in "the know" you have no chance. The market is no longer a discounting mechanism that uses fundamentals and P/E ratio's to come up with fair values for stocks.

In fact:



Unless you are one of the lucky owners of one of the Goldman/JP Morgan Crackberries that's on the receiving end of hearing what the Fed's next move is, you are screwed because the "lowlife" retail investor doesn't get the information until the pigmen have already already placed their bets. The money has been made long before you "the retailer" hears the news on Bubblevision.

The stock market is officially a sham. The rally from the bottom all got started with the "Big 3" banks all coming out at the same time and announcing that business was much better during Feb.

This got the market rolling and the pigmen never looked back. The banks proceeded to go on a stock market buying spree which took many by complete surprise including even some of the quants. In doing so, the banks were able to manipulate their stock values up to levels that allowed them to do stock offerings and raise capital at much higher prices which resulted in much less dilution.

The lies and manipulation kept on rolling after this one: "Green Shoots" started popping up all over the place. All of the sudden signs of the "great recovery" were everywhere! Stocks began to cheer when they saw home sales rise 3% in March.

3%? Are you kidding me? After a 30% drop? Big dipty doo! Is this is a green shoot or a minor blip on the radar as we roll right towards The Greatest Depression?

The more I reflect on our current great recovery the more I see how blatantly Wall St manipulated all of us. The rising market share of the institutional investor is absolutely frightening to me.

Why? Because you don't know what they plan on doing next! They know there is no real recovery. The whole thing is a total sham.

As a result, you need to ask yourself a question:

What if one day they decide to push the sell button and start selling to the clueless retail investor's that think the rally is real after a 30% move to the upside?

Hell, Goldman and the rest of the boys won't even hesitate to go short while they are in the process of selling you their holdings after a nice rally. The market will then roll over and once again the little guy gets screwed while the banks make another mint on the short side.

If the big trading desks don't burn you in this manipulated market the Fed certainly will. If the Fed decides its going to pull liquidity from the market, I am sure the boys will get a "heads up". They will then once again reach for the sell button and start dumping shares. Who are they selling to? YOU OF COURSE! God forbid they get left holding the bag.

Either way you are playing a game that's stacked against you. The only thing I can compare it to is a casino. You are betting against "the house" anytime you make a trade right now. What's different about investing in this cesspool today is "The House" never held all of the cards like it does now. The retail investor has shrunk from 80% in the early 1980's down to 30% today.

Gee, do you think it's coincidental that we saw the greatest bull market in history as the retail investor shrunk in influence and power?

Bottom Line:

You never want to invest in a market where the fundamentals don't matter. If the markets being gamed and you aren't in the loop stay away!

My advice? Try and trade in markets like the bond market where there is at least some transparency. Can you still get gamed here by the Fed and QE? Yes, but its a lot larger market which makes it more difficult to manipulate.

The traders in Chicago are much more sophisticated and transparent. I am involved much more in the credit markets than I am in equities at this point. I am short treasuries as many of you well know. The bond vigilantes appear to be out fighting the Fed which is an excellent sign. The credit markets are the ONLY guys that can stop the endless spending by the Fed.

It appears they are ready to do battle despite a slight pullback today. The dollar continues to vanish and commodities continue to soar as a result.

The bulls are trying to spin this by saying commodities are up because the economy is recovering! Yeah Right! Not! Its a sign that our dollar is collapsing as a result of our obsessive spending. All of this will eventually force the Fed to stop the music. If they don't I hope you enjoy that $20 loaf of bread at your grocery store.

Remember, the Fed is killing our dollar everytime they QE. They are monetizing debt or "printing" everytime they do this. The more the Fed QE's, the more pressure you will see on the greenback.

As for stocks? Need I say anymore? When the pigmen control 70% of the game "No thanks I'll pass".

The problem the banksters have here is EVENTUALLY the fundamentals always matter. You can only fix this game so long before you run out of money.

Wall St will eventually run out of cash because the economy sucks. The only reason we have any liquidity in this market is because the Fed is stuffing everyone with cash. The bond market is about to end this game so buyer beware.

Once the liquidity runs dry in the markets it's going to be an absolute bloodbath. It's impossible to know when this turn date will be but my guess is it's sooner rather than later.

If you dabble long "stay nimble". The recovery is nothing but a marketing ploy for Wall St. Once they have sucked everything that they can out of this rally, the boys will get out by selling to you!

Don't be the fool that's left holding the bag of stocks.


CT-Hilltopper said...

I have been trying to say this very thing to everyone I know, but no one wants to hear, Jeff.

I've been accused of being depressing...being a downer...having a down attitude...always looking at the dark side of things...always being negative...all of this from people who are supposed to love me and have a little appreciation for what I have to say.

I give people like you, and Mish, and the Ticker guy a lot of credit. I know how hard it is to feel like I've beaten my head in just by dealing with my family every day. I can imagine what you guys feel like with the responsibility of a blog on your shoulders.

Nobody wants to hear it now Jeff.

Especially because it's true.

Jeff said...


I am sorry that your family sees you in this way.

I think you are just being realistic and you know everyone in here views the world in the same realistic way. If you ever need a pick me up stop on by!

A lot of my family grew up and worked on Wall St so they know the gig is up. I guess I am fortunate in this way.

On of my close family members who had 50 years on the street refuses to discuss whats going on in the markets because he thinks we are so screwed.

I am totally serious. You get him on the topic of treasuries and he just stops mid sentence adn sys to me "Jeff...Lets change the subject. I just can't talk about it"....

He keeps asking "Why are they just now selling off treasuries?".

He has consistently said that the market made no sense to him since the mid '90's.

When you feel isolated, please understand that some very savvy smart people who are in the game feel the exact same way that you do.

Jeff said...


Also, people IMO do want to hear it.

My viewership is up 30% since this bounce started, and its up 40% or so in the last month.

This usually isn't how it works when you write a bearish blog.

I have been fortunate to get some nice exposure from some much larger blogs thanks to the E.S. and others, but people do want to hear it IMO.

they want to hear it because Americans are suffering and they don't understand why the market is up.

They see their friends being laid off and they see the threats to their own job and they just don't believe all of the "green shoots" horseshit thats being fed to them.

People are angry and don't feel they are being told the truth.

At least this is why I believe people are flocking to contraion sites like Mich and KArl Denninger.

I am just a growing small fry but the trend is impossible to ignore. there is a strong underground that wants to hear the truth!

I will do my best to continue and interpret what I see out there.


opportunistic said...

Gentleman, being correct first is often difficult. I took a lot of heat and was mocked when I sold my house in late 2004. According to the crowd I was wrong, but it worked out OK.

Think of the guy that turned in Madoff close to a decade ago. He was right but no one wanted to listen to FACTS.

The facts are, real estate and securities are significantly overvalued. Any system you can think of (religious, gov't, business,etc) has been corrupted and every solution is a failure before it begins because of the inherent corruption from the CEO to the welfare mom. We are screwed.

It's nice to chat with people that choose to make up their own minds, but in many cases ignorance is bliss. Just think of how nice it would be to have been in CD's for the past decade.

There is a place for logic, but consensus or even majority takes time to come around. Small tokens of reassurance present themselves often enough to keep us true to our beliefs. My favorite quote was the guy that said he had 100% gain on his cash based on the S&P.

Anonymous said...

thanks for the update. you said to trade in bond market. what else besides that is transparent and not so easily rigged? I know gold and silver are small gamed. What about Oil?

Jeff said...


Here here!

Well said. Congrats on selling your house in 2004. I sold in 2005at the asking price.

I must admit I got lucky becaus I had to sell due to a job promotion.

You are so right about the corruption up and down know matter who it is.

Most people don't wanna hear facts unless they are "green shoots". We live in a fantasy land thats about to get a giant wakeup call.

California is about to learn this as they sit on the brink of bankruptcy.

Gee Arnold, do you think paying people in public service 200k a year might be a little over the top?

Don't get me wrong I have total respect for everyone who works in these roles but come on people: The average income is around 35-40k in this country!

Its time to get back to reality!

Bill Gross said today that people need to understand that a 9-10% annual return in the market is history moving forward.

Bonds and cash at 5% per year are sounding better and better versus taking enormous risks in the stock market.

I will eventually allocate money there but it won't be for years and it will never be the majoruty of my portfolio.


Jeff said...



Other ideas? Ummm...You gotta big mattress? LOL

Seriously, I wish I had more answers for you. Oil is very speculative as well.

I am diversified for inflation and deflation. I suggest you own some things like oil, commodities(metals etc.) as a hedge against inflation.

I would also try and stockpile some cash in case we see a japanese like deflationary collapse. You can put this in CD's under the the FDIC limits.

Either scenario is still possible although I am starting to lean after the infaltionary scenario as I watch the Fed panic. I was a staunch deflationist previously.

I think its best to hedge for both scenario's until we get a clearer pisture as to what the Fed policy will be moving forward.

I wish I had some more ideas for you. unfortunately this toxic market leaves you with very few places in which to invest.


I would prepare for both.

BAM said...


I am a beginner in trading so my knowledge in the market lingo is very basic. You mentioned trading the "tape". What does that mean? Is it a trading program that's used by some traders? Sorry for asking such basic question.

You are absolutely right about the markets being gamed. As for me all my assets are in cold hard cash or CDs. My only bet is the FAZ which is not doing too well as I mentioned before.

Fundamental does will matter eventually. All this will catch up eventually... It's just matter of when.


Jeff said...


No need to apologize. We all were new at some point.

The "tape" is a reference to the old trading days where traders read a tape in order to see what the market is doing.

Today's "tape" can be seen live right on CNBC or BLoomberg.

I think you are smart to stick in CD's and cash for now. Many veterans are doing the same thing because this market is extremely dangerous!

Sit tight with your FAZ and hopefully we will see some opportunites down the road.


Peter said...

Jeff, once again, great post. I could not be more in agreement with you. Sure we have no smoking gun proof, but isn't it amazing that every time the Fed has one of their announcements the tape moves in reaction to the announcement the last hour of the prior trading day?

What I am stuck on is whether (a) these fools think that we must save the banks at all costs, regardless of illegality, in order to save our country or (b) they are just outright thieves who scuttled the boat and are now grabbing all the gold and jumping on the life rafts to watch us die in the sinking ship.

I am not totally sold on the collapsing dollar. To think that we are the only ones that are going to print our money to hell is unwise. Europe, UK, Swiss are all following suit. Is it possible for every country to have inflation? That would signal a gold trade to me but as for commodities and oil the demand is just not there right now or in the near future.

Either way, we are all screwed. I keep trying to figure out what I am missing here that would make my beliefs a little less obvious and I can not come up with anything. But how can they be so obvious if everyone does not see them?

The only answer is that the sheeple in this country want to bury their heads in the sand. I also believe the government did this to us. They made life impossible, made us have two parent working homes. Stupid people who are uneducated by teachers who make too little because their union leaders are stealing half the education money. Who has time to figure out all these things when you can barely keep your own house in order.

At the end of the day I think the problem is that the people in this country are mentally lazy. They don't want to do the work finding out the truth so they accept what they hear on television. Lets be serious, every news outlet in this country is now just a talking points channel for Obama. Not one single channel challenges any of these moves. The freaking car czar is a former NYTimes columnist! A dozen reporters have moved into political jobs this year.

Jeff said...


Great comments!

You nailed the oil demand story!

Commodities are getting killed today. Gold included. This market is deadly.

I sadly agree with you on the American people. Watching everyone sit on the sidelines as our country goes down the tubes is pretty pathetic.

I think I am leaning toward A in terms of the banks. I think they feel they can't allow these banks to fail no matter what the price.

Gold is the devil to a central banker and banks in general because it threatens to replace the US dollar as a currency.

This makes all of their balance sheets worthless. My guess is they fight gold to the death.

Tough market!

Lets see how ugly this selloff gets. Should be interewsting.


Anonymous said...

sorry to inform you but the market is going higher despite all the right things that you wrote... The reason - market reversed course and it is not going to change it again after few weeks. It is going to go much higher until all fools get in (like couple of years ago) and thats when it collapses. I sold stocks in my 401k when DJI was 11700 just to watch it go to 14K. Today i am happy i did not get sucked back in but i surely hate the fact i missed big upside. Same thing is gonna repeat - all the logic and reasoning says market should not go up and yet it will.

Anonymous said...

and by the way on your question - are we being gamed? - YES!

Jeff said...


I agree.

The market loves to hand out maximum pain.

Selling out at 11,700 is looking pretty good now as we sit here at 8500 looks like a great decision now doesn't it?